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Pre-operating expense - Printable Version

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- Ali78 - 10-06-2010

In a recently incorporated company , how would you treat Company's Incorporation Expenses(Fee paid for incorporation certificate) which have been paid for by the Director through a Payorder from his personal bank account.

The Company did not have a bank account till that time.
How can u record these pre incorporation expenses without crediting bank/cash??

is it ok to pass this entry

pre incorporation exp DR.
Loan from director CR.

In that case how can we settle the Loan from Director account??

I also want to know whether Pre Incorporation exp should be capitalised or not??

- kamranACA - 10-07-2010


Sponsors (even if they are not subsequently the directors) can be remibursed all costs they borne in connection with incorporation of the Company.

You need not to credit "Loan from Directors account" if you have funds currently (after incorporation of the company) and you wish to reimburse such expenses after getting required approvals from shareholders/BOD. You can simply debit the expenses and credit the bank while making payment.

If payment is to be made at a later stage you can simply credit "Payable to Directors" in current liabilities.

All incorporation expenses of the Company have to be expensed out in profit and loss account. Now, there is no concept of deferring such expenses. However, IFRSs allow that the expenses specifically incurred in connection with issuance of share capital only can be shown as a deduction from Issued, subscribed and paid-up capital in the balance sheet instead of charging to profit and loss account.